SABS & NRCS turnaround strategy

Meeting report

Opening Remarks
The Chairperson greeted the Committee Members and everyone who was connected on the online platform.

The Committee Secretary confirmed that the meeting was quorate and presented the agenda.

Ms J Hermans (ANC) stated that the ANC requested the deliberations on the remitted Copyright Amendment and the Performers’ Protection Bills be removed from the agenda and be put back on the agenda at a later date.

Ms N Motaung (ANC) seconded the proposal by Ms Hermans.

The Chairperson requested comment from Committee Members. As there was no objection, the item was removed from the agenda.

Committee business

4th Quarter Committee Programme
The Committee Secretary presented the 4th Quarter Committee Programme.

The Secretary noted that all references to the remitted Bills were subject to change as a result of the Committee’s decision in respect of the Bills that morning.

He noted that the interviewing process for the National Lotteries Commissioner (NLC) would start on 27 October 2020. The interviews would take place on 28 October.

The Chairperson commented that all Members of the Committee had received a letter from Corruption Watch about the interviews for the Chairperson of the NLC. He added that the interview process would occur in the parliamentary precinct and all Members would have to attend in person.

Mr D Macpherson (DA) welcomed the holding of interviews for the NLC in Parliament. He suggested that the Committee had to draw up an operating procedure so that Members understood what they wanted out of the interviews, including knowledge about how the individuals came to be candidates. He was happy so far but a bit of back-end work was needed before the interviews took place. He looked to the Chairperson for guidance.

Mr S Mbuyane (ANC) asked if the Committee was dealing with an acceptance of the programme or whether the Committee was dealing with individual items in the agenda.

The Chairperson explained the procedure was to look at the programme before adopting it.

Mr Mbuyane proposed the adoption of the agenda.

Ms Motaung seconded the proposal.

Ms Y Yako (EFF) referred to the remitted Bills that were being moved along. She suggested a small workshop on what was required of the Members in respect of the Bills. She asked that the Bills be prioritised and not be pushed further into the future. They had to be dealt with as quickly as possible as it was an important matter.

There were no objections and the 4th Quarter Programme was approved.

The Chairperson stated that the Committee would have a discussion on the Bills as that would be important.

Presentation on the SABS Turnaround Strategy
Ms Jodi Scholtz, Administrator, SABS, made an extensive presentation on behalf of the Bureau. All SABS officials online indicated their presence.

Ms Scholtz indicated how the Bureau had supported the Covid-19 strategy. She pointed out that SABS had improved its debt collection. The corporate plan had been submitted to the dtic but the impact of Covid-19 was still an unknown factor. The budget had been adjusted by National Treasury and there could be further downward adjustments. The critical aspect of the Turnaround Strategy was working on the revenue-generating aspect of SABS.

SABS had formed an important partnership with the Council of Scientific and Industrial Research (CSIR). SABS had also been actively involved in the testing of personal protective equipment.
Ms Scholtz expressed concern about the Technical Committees at SABS which defined the standards that were developed. Participation in the Technical Committees was voluntary but only 26% of the members were women. SABS had requested dtic to encourage black entrepreneurs to get involved in the committees. They were also looking for women, especially young women, to get involved.
The South African National Accreditation System (SANAS) had recognised that 11 of the 12 findings in respect of the SABS laboratories had been resolved to date and SABS was working well with its accreditor. SABS had done exciting work in localisation and in testing services across the SADC area.

(See Presentation)

Presentation on its Turnaround Strategy by NRCS
Mr Edward Mamadise, CEO, NRCS, made a presentation on behalf of the Regulator. He was accompanied by the Interim CFO Ms Phetsile Magagula, Ms Abigail Thulare, COO, Mr Edward Matemba, Manager Strategy and Risk, and Ms Nontombi Majola, Acting CIO.

Mr Mamadise began with human resources, noting a high turn-over in senior management over the years. There had been four CEOs since the establishment of the NRCS in 2011 and currently there had been various critical vacancies. Recent appointments included the appointment of the CFO and the Head of Procurement. He believed that the labour situation had been stabilised. The competency development programme remained an issue to be fully implemented but proposals had been made to the Minister.

Ms Magagula informed the Committee that the audit work for the NRCS had not yet been concluded. The two issues related to the pension. The second issue related to the revenue recognised by the NRCS. The Auditor-General had an audit finding and the NRCS had had to show how it had come to that amount as shown according to the NRCS Act. The audit team had gone back to its legal team to attempt to resolve the issue. National Treasury had agreed to wait for the Auditor-General’s technical response and the officials from the Office of the Auditor-General continued to audit the books.

Ms Thulare presented the Pre-Market Approvals, known as letters of approval (LOAs). All approvals of measuring instruments been finalised within 120 calendar days in the previous year. The approval levels for vehicles was lower because the sale of automobiles was not considered an essential service at the commencement of the Covid-19 pandemic.

Ms Majola presented notes on progress made in updating and modernising the network. The NRCS had put out a tender for assistance with the modernisation of the IT systems and had received 50 bids on the tender. The Regulator was currently evaluating the proposals from bidders. ICT was working on a consolidated Local Area Network, with certain initiatives aimed to be completed by December 2020: network switches, internal firewalls, enterprise Wi-Fi and security monitoring tool. The NRCS would start with the implementation of Payroll, Leave Management and Finance modules by March 2021. Full ICT security initiatives would be completed by June 2021.

(See Presentation)

Discussion
Ms Hermans was encouraged to see the progress made, despite the Covid-19 pandemic. She asked both organisations to inform the Committee whether the turnaround strategy had been extended due to the pandemic and the budget cuts. SABS was not filling vacancies, so what was happening when a person left the organisation? Surely someone had to do the work that that person had been doing. She was pleased to see that the NRCS was filling positions.

Ms Motaung welcomed the presentations and applauded the NRCS for the issues that had been resolved. Addressing the SABS, she stated that the Committee would very soon be undertaking the Budget Review and Recommendation Reports (BRRR) process and the SABS was undertaking critical maintenance of its properties. Had SABS set aside a budget for the process or would the process only take place in the next budget cycle?

Ms R Moatshe (ANC) noted that the SABC had no capacity to test masks. That was concerning. Would SABC be developing tests for masks?

Ms T Mantashe (ANC) noted the progress at the SABS and NRCS but she was sick and tired of hearing about the NRCS modernisation strategy. If it did not work, the NRCS should come up with something different. Had all audit queries for the previous year been finalised? She noted that the NRCS was to be a micro structure but was that a modern word for retrenchment? What did that mean for completion of the work that had to be done? Government was in a drive to create jobs. Was NRCS not working against that initiative if it intended reducing employees?

Mr Mbuyane applauded the good work that had happened in the turnaround strategies. Regarding SABS, he asked about training for local content verification and the revenue generation strategy. Was there any education of the masses of SA, so that they went back to SABS as it had become a viable entity.

He recalled that the NRCS had to meet with the Auditor-General of South Africa (AGSA) in June 2020 to discuss the critical issues raised by it in terms of the database management system. Had the meeting happened and did the NRCS know what was required in terms of database management? ICT modernisation at NRCS was still ongoing. The Committee wanted to hear that the process was complete and that everything was being done electronically. Did the NRCS have a system for verification if it was possible to do that electronically?

He applauded the progress at the NRCS in that there were new staff, but why was there an Acting CIO?

Mr Macpherson asked Ms Scholtz what progress had been made concerning rationalising the business of SABS. It was clear that the SABS was burning through cash way more than before lockdown. He suspected that the projections for running out of cash had been brought forward. When would the SABS see a return to profit? He believed that the only way to save SABS (and he had seen no material difference) was to downscale in a dramatic fashion. How was that taking place?

He noted that the NRCS remained in a complicated financial situation, and seemed to be deteriorating. The operational side had improved but he could not see any way for both entities to survive unless they amalgamated, despite the reluctance by the CEO to amalgamate. At what point was that discussion going to take place? Both entities sat on enormous pieces of land that would never be fully utilised and there was a lot of value to be unlocked in that asset alone.

Ms Scholtz responded to Ms Hermans and Ms Macpherson. Initially SABS had said two years was required to come to profitability and that was the measure that the Bureau had been using. With the impact of the Covid-19 pandemic, the SABS was looking at twice that time, i.e. four years. The process currently being undertaken by management was to look at a central operating engine that looked at things for SABS. It was like centralised planning which would allow SABS to monitor every aspect of the business. SABS was pivoting into that model. Quality Assurance was embedded in every job description for every person and not simply a centralised concept. That was being implemented at the same time. The Bureau had already implemented a service structure for dealing with the clients. Laboratory managers were dealing directly with customers to resolve problems immediately. The intention was to create a one-SABS approach to dealing with customers, but the finance remained a concern.

Regarding the filling of vacancies, Ms Scholtz explained that staff were acting in positions where people had left. She hoped that the structures would be in place by the end of year, following which permanent appointments could be made. She explained that when one referred to macro structure, one was referring to the high level structures such as the CEO and the functions of SABS, such as the quality assurance system; microstructure related to the various functions, such as the development of standards. It was a step down into greater details, such as laboratories and ensuring that there were sector-specific laboratories, etc. One had to go through due process in terms of job levels, etc.

Ms Scholtz told Ms Motaung that SABS had budgeted for the critical maintenance of the property. She also referred to cement operations, stating that SABS could possibly purchase an operation from a cement-testing facility from a private business. That would boost capacity in a quick way. As far as the testing of masks was concerned, some work was being done. To develop a capacity was not a short-term activity. It was related to having the right staff who understood the processes and had the skills, as well as acquiring the right equipment through the PMFA procurement procedure. Mr Ntobongwana would provide further details.

Ms Scholtz addressed Ms Mantashe’s concern by explaining that SABS was looking at an available IT system which could be customised. That would be quicker and cheaper to implement.

Ms Scholtz was not able to share the audit outcome for 2019/2020 as she had been warned by an AGSA official that it had to remain confidential until the Annual Report was presented in Parliament, but she did say that SABS had very recently received a series of congratulatory emails. The Bureau had gone from 80 findings in 2018/19 to 18 findings in the 2020/19 audit. She congratulated the CFO and the finance team on the achievement. It now had to be institutionalised.

The most critical aspect to be addressed was to ramp up revenue generation. Ms Scholtz explained that SABS still had to develop a property strategy but management was working on it. SABS had conducted targeted campaigns on sharing standards. For example, electricity sockets had changed and all new buildings and homes had to be fitted with the new plugs which provided for two point plugs and usb chargers in order to reduce the hazardous dependency on extension plugs and other dangerous electrical connections. SABS had conducted a virtual meeting with the media the previous day, but she took the point that there was scope for looking at different ways of marketing.

Ms Scholtz added that SABS was making use of virtual audits of overseas customers while in the Covid-19 situation.

Ms Tina Maharaj, Chief Financial Officer, stated that SABS had initiated cost-cutting measures and she monitored the cash situation on a daily basis. A lot of work was being done in that area. SABS had pushed out Day Zero when the Bureau would have no cash. She thought that the organisation would be okay for the next year. However, current revenue generating strategies had pushed Day Zero out much further and she believed that there was an improvement that would eliminate the risk to the cashflow. She added that all audit findings from the previous year had been resolved. SABS was using the dtic capitalisation grant for the development and upgrade of facilities and laboratories.  Digitalisation was being well-funded. Funds were being re-prioritised as required.

Mr Lungelo Ntobongwana, Acting Executive: Laboratory Services, SABS, responded to the question on the testing of masks. SABS was utilising a testing facility at Armscor to test masks SABS but was also working on getting an SABS testing facility for masks up and running within months.

Mr Katima Temba, Acting Executive: Certification, SABS, confirmed that SABS had conducted awareness programmes. In particular, SABS was leveraging on the partnership with ProudlySA as it had a large constituency of key stakeholders. Equally, using the Chamber of Mines platforms, SABS was able to disseminate a lot of information regarding local content verification to industry players. In so far as the auditing processes were concerned, SABS had embarked on remote auditing which would be adopted as a regime in respect of alert levels and the cutting of costs, but SABS would have to address the question of how to ensure that companies were prepared for the process of auditing and inspection.

Mr Lizo Makele, Executive: Human Capital, SABS, stated that there were currently a number of vacancies. Vacancies created through natural attrition did not always have to be filled. Where a vacancy would affect the work, a person was requested to step in. The organisation was contracting people on short term contracts in cases where the skills were not available within the organisation. Issues of succession management had to be addressed and so SABS had ramped up the employment of new graduates to be able to replace the older people when they did leave or retire.

Dr Sadhvir Bissoon, Executive: Standards, SABS, stated that the separation of the two institutions, SABS and NRCS, had been undertaken via legislation in 2008 to avoid conflict of interests and the same applied to the separation of the other technical institutions. The legislation was very clear about the separation of SABS, NRCS, SANAS and National Metrology Institute of South Africa (NMISA). That gave each technical institution a clear mandate of what it had to do to support the economy. Not all SA national standards were regulated. There was no mandate for a regulatory body in a standards creating body because standards were, quite rightly, voluntary. A regulator could be created but there was a difference. One had to remember that the standards were voluntary in respect of the industries and only if there was a failure in the market, would the Regulator come in and regulate certain standards to maintain its regulatory objective. The standards setting bodies did not have the mandate to go out into the market and demand that companies require a particular standard, such as an IS9001. That was not an international best practice.

There were more than 200 regulatory bodies in SA working in very diverse areas and SABS fulfilled only a very small portion of that work. He added that the dtic was doing an assessment of the four technical institutions (SABS, NRCS, SANAS and NMISA) and that was almost complete. He expected that a report would be available shortly.

Ms Scholtz assured Members that all human resources decisions were taken following consultation with employees and the process was overseen by the dtic.

Mr Mamadise told Ms Hermans that only 30% of the costs of NRCS was covered by government and the rest was covered by levies. The cuts implemented by government had not impacted on the financial position of the NRCS. NRCS was not concerned about financial sustainability as there was no problem there.

Regarding the modernisation process, the organisation was out of ICU (intensive care unit) but the NRCS was still awaiting the outcome of the current audit to determine as to whether it was to continue with the turnaround strategy or continue as normal. However, there was a dichotomy in the situation of the NRCS. As much as the cashflow was sufficient, there were unfunded mandates that could be problematic, including the legal metrology extended scope, implementation of the regulations for processed meat which the Regulator had started to implement. The budget cuts impacted on those new projects but the NRCD was obliged to implement them.

Mr Mamadise informed Ms Mantashe that the modernisation project was an ongoing improvement process and not just an event. It was a continuous process that adapted to the changing environment. Some of the modernisation projects had been implemented but currently the ERP (enterprise resource planning) system was being developed. It was too early to say what impact it would have on processes.

Mr Mamadise acknowledged that Ms Scholtz had provided a good distinction between macro and micro structures. The NRCS was understaffed and so the issue of retrenchments did not arise as the organisation was looking to increase staffing to meet the new requirements for the organisation. Expansion of the organisation was inevitable but, considering the continuous extension of the work of the NRCS, additional staff was required, although he was aware of the difficulty of obtaining funds for additional staff in the current financial climate.

Regarding the audit of the 2019/20 financial year, the audit was continuing and had been extended beyond 30 September 2020 with the agreement of National Treasury. So far, there were only three audit findings and those were not material findings. Mr Mamadise believed that if the audit continued along that trajectory, there would be an improvement in the audit opinion.
 
He reminded Mr Mbuyane that he had reported in June 2020 that the Auditor-General had agreed that, after the NRCS had finalised the estimation methodology, the Office of the Auditor-General would be able to look at it and make comments to assist the NRCS to get out of the quagmire regarding the audit. However, the Auditor-General had reneged on the promise and suggested that it would be a conflict of interest to comment on the methodology and then audit the methodology. Nevertheless, the Regulator had every confidence that it could develop a good methodology using its own resources. All of the issues raised in the previous financial year had been addressed by the current methodology of the NRCS.

Mr Mamadise informed the Committee that the NRCS had an Acting CIO from SITA but would be shortlisting for the position of CIO within a couple of weeks.

In response to Mr Macpherson’s question, he stated that the SABS had responded adequately. The constitutional democracy demanded a separation of powers to prevent any abuse. The rationale to separate the Regulator was a well-informed decision. If he had to advise government, he would make the same recommendation, except that he believed that it would serve the government well if a single, independent national standards setting body were established, so the SABS should be even further disintegrated and the conformity assessment taken out of the SABS mandate as that would address the issue of financial sustainability. A conformity body should be established independently as a state-owned enterprise so that it could compete independently in the marketplace in the same way that other conformity bodies, such as the International conformity body, were already competing with SABS. As the SABS had stated, the dtic had started an assessment process and it was necessary to await the outcome of that process. His position was clear that NRCS was an essential body with the function of addressing market failure.

The Chairperson asked if the dtic representatives had comments but they did not offer any additions. He stated that it was important for the Committee to receive regular updates from the two entities.

Concluding remarks
Ms Scholtz thanked the Committee and the Chairperson for the guidance and support.

Mr Mamadise echoed Ms Scholtz’s thanks.

There were no further comments from the dtic.

The Chairperson concluded the issue and stated that there were no further engagements on the agenda. He informed Members that the next scheduled meeting would be on 13 October 2020 and thanked them for their participation.

The meeting was adjourned.